Information and Consulting

Thursday, July 24, 2014

I read a post the other day that
said the reason for the flat rate of housing sales is that they are too
expensive. According to the article by Frank Anton, only 1 in 6 homes sold is a
new home. Currently the percentage is even
lower. One of the reasons is the national average has new homes costing 45%
more than an existing home. I’m shocked that it took this long to figure out
what has been the norm for more than fifty years—new homes almost always cost
more than existing homes.

It is this relationship between
the new home and the existing home that has provided the base line for
affordable housing—the existing older home is the affordable home market. The
twisted belief that we can build new
affordable housing is the mantra pushed by agencies, charities, and cities. And
the only way it happens is by subsidies, fees tacked on new housing, and
grants. In other words new affordable housing exists because someone other than
the homebuyer is contributing to the bottom line cost of the house. Which
brings me back to home prices.

Outside of those few who believe
that all homebuilders are carpetbaggers, speculators, and opportunists, almost
every builder I know won’t build unless he has a confirmed market. There is
little if any speculative building today, this is a lesson they learned in 2008
when it all when to hell in a lender’s basket. To believe that builders just throw
out product like they were chumming for tuna is just plain silly—the forces of
the marketplace would kill them.

At any time in any market housing
will be too expensive—until it's not. What controls housing costs are five
things: land cost, entitlements, materials, labor, and profit. Working
backwards the builder makes choices through these five factors to set his
price. He narrows his profit, he finds cheaper or non-union labor, he buys
materials in bulk, he begs for fee reductions (building the park may be cheaper
than paying the park fees), and lastly maybe he can renegotiate the land cost.
It is a complex dance played to the tune of the band—the marketplace—that has its
own balancing act of interest rates, debt, and income.

The difficulty today, especially
in dense urban markets, is the newest player in the game—the non-profit
affordable home builder (the non-profit thing is a ruse, they make a lot of
money, it’s just called something different). They compete directly and
unfairly with the for-profit builder at the first-time-buyer market. Why would
a builder go through all the sturm and drang of the entitlement process to
compete at the lowest cost/profit level when, with government assistance, he
can and will be undercut? They won’t, they will just build to a different price
point.

So, the real reason for the
rising cost of housing is that we are not building enough housing—period. The
only way that housing costs can go down is to noticeably modify one of the five
factors. I don’t see this happening in the near future. Land costs are
dramatically rising in urban areas, my experience recently is that cities are
not interested in reducing their fees (some are raising or expanding their
fees), materials costs are holding steady but this is a result of more supply
than demand, labor is flat (but the push on the minimum wage may have an
effect), and profit is what it is, except when there is competition which can noticeably
affect the price.

It’s my opinion the biggest
problem right now is the first time homebuyer market. They are unsure about the
future and will bide their time. If they can settle into a good apartment, get their
student debt managed, and maybe even find a willing partner to share the
burden, the market will change. But right now I think they are marking their time—which
is not good for the merchant homebuilder.

Saturday, July 12, 2014

When I listen to the latest on traffic in the Bay Area
and San Francisco (Galaxy Base for Cogito Urbanus) you would think we were in a
free fire zone of automotive chaos and collisions. Here are a few videos that
make you wish for those future days of robot cars.

The above is in Addis Ababa, Ethiopia (I bet some of you
thought is was Columbus Circle in New York City). Makes you kind of dream about
stoplights and left turn arrows. What is most fascinating are the pedestrians
dancing in and amongst the cars. I hate to think of the number of accidents,
though libertarians might think this all normal which proves that we don’t need
the heavy hand of government over-management.

Note the seven lanes demarcated
in the upper left lanes (Traffic Engineers of Africa) with appropriate turn and directional arrows. Watch how
they are stringently followed. And I also note the lack of bicycles, I guess
they are not as useful in a third world country as I was led to believe.

Now Ho Chi Minh City, Vietnam is an entirely different
matter. One difference is the dominant use of motorcycles and mini-bikes. The
intersection also has a traffic signal, one I believe, that hangs over the
center. As with Ethiopia, pedestrians must fend for themselves.

Mumbai, India looks like any intersection in New York
(mostly taxis and pedestrians) or Columbus Street in San Francisco.

Thursday, July 3, 2014

Have a wonderful and safe 4th of July, just a reminder of why we are here.

IN CONGRESS, July 4,
1776

When in the Course of human events, it becomes necessary for one
people to dissolve the political bands which have connected them with another,
and to assume among the powers of the earth, the separate and equal station to
which the Laws of Nature and of Nature's God entitle them, a decent respect to
the opinions of mankind requires that they should declare the causes which
impel them to the separation.

We hold these truths to be self-evident, that all men are
created equal, that they are endowed by their Creator with certain unalienable
Rights, that among these are Life, Liberty and the pursuit of Happiness.--That
to secure these rights, Governments are instituted among Men, deriving their
just powers from the consent of the governed, --That whenever any Form of
Government becomes destructive of these ends, it is the Right of the People to
alter or to abolish it, and to institute new Government, laying its foundation
on such principles and organizing its powers in such form, as to them shall
seem most likely to effect their Safety and Happiness. . . . .

. . . We, therefore, the Representatives of the united States of
America, in General Congress, Assembled, appealing to the Supreme Judge of the
world for the rectitude of our intentions, do, in the Name, and by Authority of
the good People of these Colonies, solemnly publish and declare, That these
United Colonies are, and of Right ought to be Free and Independent States; that
they are Absolved from all Allegiance to the British Crown, and that all
political connection between them and the State of Great Britain, is and ought
to be totally dissolved; and that as Free and Independent States, they have
full Power to levy War, conclude Peace, contract Alliances, establish Commerce,
and to do all other Acts and Things which Independent States may of right do.
And for the support of this Declaration, with a firm reliance on the protection
of divine Providence, we mutually pledge to each other our Lives, our Fortunes
and our sacred Honor.

THE CHERRY PICKERS

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About Me

Greg was born in 1949 in Traverse City, Michigan. Raised near Chicago he moved to California in 1971. The son of a journalist and entrepreneur, Greg has never forgotten his roots; his non-fiction work has focused on the Midwest region. Californian by choice, Mr. Randall makes his home in Walnut Creek, California with his wife, constant companion, and business partner. His preferred fiction genre is mystery/thrillers and historically based novels.